THE BANK MERGER

Published: August 13, 1991

(Page 2 of 2)

He added that he did not expect any antitrust problems. Banks, he said, were facing competition not only from one another but also from other types of companies, like the American Telephone and Telegraph Company in credit cards and the Ford Motor Company, which owns a savings and loan and a leasing company, in consumer finance.

However, analysts said that regulators might require some branches to be divested because the combined banks' market share would be too high in some areas, particularly in Washington, where BankAmerica already owns Seafirst, the largest bank, and Security Pacific owns Rainier, the No. 2 bank, and in parts of California, where they are dominant.

Mark Foster, policy analyst with Consumer Action, a San Francisco consumer group, said the merger "is going to mean less competition and less consumer choice." Consumer groups in California have long contended that the four large banks' dominance in the state means that Californians receive lower interest rates on deposits and pay higher interest rates on loans than people who live elsewhere.

Wall Street analysts, in contrast, praised the move, saying it would result in huge economies of scale and bolster BankAmerica's earnings in the long run. "The merger strikes me as being a brilliant move," said Thomas H. Hanley, an analyst at Salomon Brothers.

Security Pacific surprised Wall Street with poor financial results in three of the last four quarters, partly because of problem real estate loans in Britain, Australia and Arizona and the cost of quitting certain businesses. The weak California real estate market has casts a cloud over all California banks.

Taking on Security Pacific's loan portfolio could present a major risk for BankAmerica. However, the bank's officials said they had thoroughly examined Security Pacific's portfolio. Other industry analysts said that any new problem loans could be compensated for by the savings in expenses because of the merger. In addition, BankAmerica will probably seek to sell some of Security Pacific's non-banking businesses.

Today's announcement is evidence of a stunning recovery by BankAmerica, which was perilously close to failure five years ago and was almost taken over by First Interstate. From 1985 through 1987 BankAmerica lost $1.8 billion because of bloated expenses and bad loans to developing nations and to companies in energy, agriculture and real estate.

But after selling assets to offset loan losses and cutting expenses, the bank has worked its way back to health. BankAmerica has now earned more than $1 billion in each of the last two years, placing it among the nation's healthiest banks.

BankAmerica has begun expanding aggressively, hoping to become a nationwide consumer bank, while the giant New York banks are preoccupied with problem real estate loans. It has bought more than a dozen banks and failed savings and loans throughout the West in the last year and half, and it bid unsuccessfully for the Bank of New England.

Because it will now have its plate full with Security Pacific, BankAmerica's expansion might pause briefly. But Mr. Rosenberg said, "We think we will still have the capability to continue to expand."

Graph: "Consolidation in the Banking Industry" Total assets, in billions, of five of the largest U.S. banks after proposed mergers are completed.* Citicorp: $217 BankAmerica+: 110 / Security Pacific+: 80 / Total: 190 Chemical